Authors
1
Assistant Professor, Department of Resource and Energy Economics, Faculty of Economics, Kharazmi University, Tehran, Iran
2
Ph.D. in Economics, Imam Khomeini Education and Research Institute, Qom, Iran.
Abstract
Introduction and Objectives: Various support programs are implemented in different countries, and the nature of their relationship with the tax system reflects the underlying approach of fiscal and welfare systems. Programs can be considered tax-based when the support system is administered through the tax system—meaning that government assistance payments are financed through tax revenues and distributed either as cash transfers or other forms of benefits. Under such programs, the tax and welfare systems are fully integrated, covering each other both in terms of data and operational execution.
A welfare system detached from taxation leads to inefficiencies in revenue collection and redistribution. In systems where tax collection and welfare payments are separate, individuals and households may simultaneously pay taxes to the government and receive financial assistance (negative taxation). This underscores the necessity of moving toward an integrated tax-support system, where financial transparency ensures that individuals either pay taxes or receive support—but not both. Such integration improves income distribution and facilitates the establishment of a unified window of support services and an electronic welfare profile for individuals and households—an objective explicitly mentioned in Article 31 of Iran’s Seventh Five-Year Development Plan under equitable income distribution policies.
Methodology: This study adopts a qualitative, descriptive-analytical approach. Given its applied nature, it examined the relationship between integrating the tax-support system and realizing the unified support services window (Article 31 of
the Seventh Plan). Data collection relies on library research and document analysis, drawing from domestic and international articles, books, and reports by relevant organizations. The research process involved:
Conceptualizing Integration in Tax and Welfare Systems: Combining revenue collection through taxation with welfare expenditure under a unified structure.
Unified Support Services Window (Article 31): Mandating the full implementation of a single portal for welfare services and electronic profiles, ensuring all cash and non-cash support is delivered through this platform.
Objectives and Methods of Tax-Based Welfare Integration: Summarized in the following typology:
Approach
Unconditional
Conditional
Cash
Negative Income Tax
Conditional NIT
Credit
Earned Income Tax Credit (EITC)
Tax Credit
Vouchers
Tax-Based Subsidies
Typology of Iran’s Welfare Programs: Analyzed based on financing methods, targeting, and conditionality, with tax-based vs. benefit-based systems as key differentiators.
Enhancing Welfare Policy Efficiency: To achieve Article 31’s goals, the government must complement the unified support window with a comprehensive income tax system, jointly improving welfare efficiency.
Findings: Based on integrated welfare approaches and Iran’s welfare program typology—considering fiscal capacity and essential goods needs—the study concludes:
Unconditional Electronic Vouchers: Leveraging Iran’s existing experience, these can direct most state support toward basic needs, particularly food security.
Tax-Based Transition: To expand the taxpayer base, welfare policies should initially rely on tax-based programs until the tax system matures.
Avoiding Benefit-Based Support: Given high tax evasion, social benefits should not be universal, as non-taxpayers would unjustly receive aid.
Conditionality Challenges: Iran’s weak oversight mechanisms make conditional approaches prone to leakage; thus, unconditional frameworks are preferable.
Macroeconomic Considerations: To avoid inflationary pressures from energy price hikes and inefficient oil revenue management, welfare financing should prioritize tax revenues over volatile natural resource income.
Discussion and Conclusion: Welfare programs vary by country based on economic conditions. While most are tax-funded, resource-rich nations like Iran often rely on oil revenues—a practice that risks fiscal instability. A key distinction in integrated tax-welfare systems is their tax-based structure, where support targets only those below a certain income threshold, funded by those above it. This model paves the way for a unified support services window, aligning with the Seventh Plan’s Article 31.
Iran’s current welfare inefficiencies—stemming from fragmented institutions and disjointed tax-welfare data—demand integration. A unified tax-support system, despite initial costs, would enhance transparency and resource allocation, with the unified window’s benefits offsetting expenditures in the short term.
JEL Classification: H11, H24, H25.
Acknowledgments: We, the authors, gratefully acknowledge the support of the Economic Research Institute for supporting this research on tax-welfare integration and its broader applications.
Keywords
